EPS-Sensitivity and Merger Deals

The (Missing) Relation Between Announcement Returns and Value Creation

“…CAR may also reflect an update about the skill of the management, its acquisition policy, or the growth potential of the acquirer (e.g., Schipper and Thompson, 1983;Asquith, Bruner, and Mullins, 1983;Roll, 1986;Hietala, Kaplan, and Robinson, 2003;Barraclough, Robinson, Smith, and Whaley, 2013;Malmendier, Opp, and Saidi, 2016;Wang, 2018;Bennett and Dam, 2019;Irani, 2020). 23 One example is the fixation of investors on earnings-per-share (EPS) dilution or accretion (Dasgupta et al, 2019). Another example is wishful thinking of investors, e.g., driven by sentiment.…”

“…relevant variables: earnings-per-share (Dasgupta, Harford, and Ma, 2019) and hot markets (Rosen, 2006;Bouwman, Fuller, and Nain, 2009). Furthermore, several studies indicate that CAR is not likely to capture all available information, since characteristics known at the time of the announcement predict acquirers' future stock performance.…”

Assimilation Effects in Financial Markets

“…2 Consequently, due to the salience of both earnings and M&A news, investors' perception of M&A deals might be affected by the earnings released shortly before the 1 See Janiszewski and Wyer (2014) for a review of assimilation effects in the psychology literature. 2 See, for example, Shalev (2007), Garvey, Milbourn, and Xie (2013), Dasgupta, Harford and Ma (2020), and Gaspar, Lescourret, and Wang (2020). As an example of press article combining earnings and M&A news, a Wall Street Journal article reports that [M&A] "deal talks and earnings results sparked sharp moves in individual stocks" (https://www.wsj.com/articles/stocks-steady-as-dollar-strengthens-1477035628).…”